BILL Holdings, Inc. (BILL) Earnings Call Transcript & Summary

Well, thank you, everyone, for going us. And early morning on the West Coast. It's still kind of mid-morning, afternoon here on the East Coast. So we're incredibly happy to have René and John from Bill.com join us for this fireside chat. It is being recorded in Zoom. So you can actually ask questions. There are Q&A box for the investors on the call. If you ask the questions, I'll get those in. If you'd like to go the old school route, you can also just e-mail me, jbeck@key.com. Either way, happy to get those questions in. So maybe just -- I'll let you kick off with a little bit of intro maybe for investors that are not as familiar with the story, maybe give us a bit of an overview and vision on Bill.com.

Sure. I appreciate us getting a chance to be here. So thank you, Josh and the team, for pulling it together. The -- from our perspective, it's just amazing that we're -- it's 2020, and the tech stack for the back office is paper-based. And this realization for me hit me back in the early 2000s when I started the first company. But it's paper because it's filing cabinets, it's sticky notes, it's paper checks. 90% of businesses say they rely on paper checks as the primary form of payment. And our vision, my vision really came from why is that so? And let me just walk you through what one customer experience is. We have a customer, Wag!, which is the #1 dog-walking app in the country, and they've got people all over the country that they're paying and working with. And when COVID hit, they were struck with a 70% reduction in revenue. And because they were on Bill.com, they were able to get through all of the mess that was out there and quickly scale back their expenses and be able to actually drive new revenue. And so that mess was really all around, "Hey, we've got filing cabinets that were gone because Bill.com had automated that. We had workflow that Bill.com had automated, and we had the payments that we had automated." And so our ability to transform their back-office operations meant that they could actually transform their business. And so the vision -- when you asked that question, the vision for me was to really give people back their time, to give them the ability to think proactively about their business without being consumed by the details of running a business. And I've grown up with my parents and grandparents, watching them run the businesses. I had run my first business PayCycle, and I saw the mess first hand. And so the vision for me was cleaning up that mess, making it really simple and easier for businesses to digitally transform their back office, to automate their payables, to automate their receivables, to manage their payments and to do all of that from the -- really from your phone. So the back office becomes your back pocket. So that was the vision.

That's a great intro. So I think you had the vision 20 years ago. I think investors are still wrapping their arms around the back office. We've heard this theme from a couple of other companies this morning. And quite frankly, it's not as obvious maybe to investors as something like a front-office application or an e-commerce application. So one of the things I think would be helpful is maybe just to walk through a little bit of the value chain and the tech stack and kind of how that changes as they adopt your solution.

Yes. The pain point that a business has is going to be to get the paper -- they get lots of different sources of information coming into their back office. So when you think about a business, they're going to get e-mails from some of their customers and some of their suppliers. They're going to get mail. They're going to get sticky notes or texts. They're going to get different pieces of information coming from all different sources. But yet you need to have one place to manage all the information. And so the way that's been done in the past is -- that's why I referenced the tech stack is really the paper check and that the paper office is that people have used paper as their tech stack. And what's then necessary is the ability to have one database that has all that information in one place. The cloud makes that possible. I kind of saw that back in maybe 2004 and '05 when I started thinking about this idea, that the opportunity was to kind of take the entire flow of the paper that's out there, right, this is the source documents, whether it's a bill, an invoice or a contract, the checks, all the collaboration that happens certainly, and put that into the cloud so that you really can be anywhere. And so the tech stack for our companies that use us is really their phone. That's all they have to worry about. I mean they can use obviously their laptop or whatever Internet-enabled device they have. But they don't have to think about what are all the ways I need to connect to a bank to move money. They might have international payments, which we'll probably talk about later. Well, that's a tedious process to connect with. They might want to pay some of their suppliers with an ACH transaction or same-day even, right? And so all those things are complexities that businesses don't have time to figure out and they don't really understand how to figure out. And we've taken that and made that -- and simplified it and said, it's all available really on your phone on any Internet-enabled device. And so what this means is that we've really changed and gotten rid of one of the obstacles for SMBs to adopt technology, which is infrastructure. They don't have to go out there and create the integrations with their banks, with their accounting systems. They don't have to go out there and buy a bunch of different implementation exercises from other companies. They can just say, "You know what, I want to sign up for Bill.com, and I can be doing it today." And we've talked about this before, but customers can be up and running in 15 minutes. That's how easy the platform is. And we saw a lot of that happening with COVID with the opportunity for businesses to get up and running, that's one of the unique advantages. And I think it shows that the biggest obstacle in the past has been the infrastructure required to automate all these things, and we eliminated that with our tech stack.

Okay. That's a really helpful kind of purview into some of the obstacles that these small businesses face. You mentioned a bit there at the end on really the impacts of COVID. So really before this call started, we were talking about working from home. Obviously, many of your customers are doing the same thing. So maybe just help us understand what kind of maybe awareness or urgency this has created on the category. Obviously, the pandemic has been challenging on many levels, but it's also created greater awareness for some of these digital-first solutions. So maybe just walk us through what happened on the accelerating aspect of it and then maybe also some of the other ripple effects when we think about things like payment volume and interest rates. Just would love to hear the impact across your business and how that's changed over the last 6 months.

Yes. I mean it's obviously complex for everybody. There's lots of different points that are coming into play as a result of COVID. The initial thing that we saw with COVID was that there -- for businesses that had already been starting to think about digitizing the back office, it became an accelerant because they now no longer were going into the office, so they wanted to get on the platform. And so the Q4 adds, which we talked about last week on the earnings call, right, we had a strong quarter, and we'd probably talk more about that here. But in part, that was the initial reaction that the businesses that needed to get online happen. So we saw that. We also did see increased attrition from our customers, but it was not as bad as feared. And so I think those are kind of the puts and takes that we were trying to understand. And what we can say on the payment volume is we saw generally a reduction in transactions, but we saw that start to pick up towards the end of the quarter. And the payment volume also kind of flattened out and started to pick up towards the end of the quarter. We are not at the point where we were pre-COVID yet. So I think we still have a ways in the recovery to get businesses back to investing and spending the way they were prior to COVID. But what we are seeing is that businesses are resilient. SMBs, in particular, are very resilient. They've stretched out their payables and pulled in their receivables, much in the same way that my parents and grandparents talked about at the dinner table. And it helps having a tool like Bill.com be able to do that. So I think the complexity of the environment kind of shows the resiliency of SMBs and something that we've been really -- continue to be impressed by the ability that they've had to kind of continue to manage a business successfully. So...

Great. And along those lines, you mentioned some of the stats. I mean, John, maybe you can just recap. Maybe what were some of the areas of positive surprise in the quarter? Obviously, results did come in a little bit better than the Street had expected. And how do you really try to formulate guidance because there are so many moving parts? Maybe just help us understand that process as well.

Sure. Yes. We delivered strong results. Felt good about the demand that we saw for the platform really across all of our channels. So it was broad-based, and it speaks to kind of the distribution strategy that we've developed over time around reaching customers directly, working with accounting firms and financial institutions. At the same time, we continued to see -- notwithstanding the softer transaction volume that René mentioned, pretty solid payment volume, which tells us that customers are continuing to really leverage the platform to operate their business. It's not a solution that they use on a one-off basis. It's how they actually run their business. And in terms of our metrics, that really showed up in our transaction revenues, and our monetization rate continues to grow rapidly. Transaction revenue per transaction was up 80% year-over-year, and we've seen consistent sort of growth there over the last few quarters. So that tells us that the new products that we're introducing are being well received. And even though customers have sort of maybe pared back some of their discretionary spending and are cautious about the environment, they're still running their business, and they're leveraging our platform to do that. Looking ahead, yes, there's a lot of uncertainty with regards to the macro environment and what that ultimately means for small businesses -- small and medium-sized businesses. And then what the tail end of the recession looks like in terms of new business formation. So there's puts and takes there that are hard to predict at this point. But as René mentioned, our customer base is proving to be pretty resilient as we saw improving trends throughout the quarter and into the early part of this quarter with regards to customer attrition and volumes and things like that. We're pretty optimistic that our market continues to be huge, and we're a leader in the space. The next few quarters might be a little bit unpredictable given the macro environment. But beyond that, it's -- we're really optimistic.

Okay. Great. And maybe just putting the macro environment aside for a minute. Your net expansion rate has certainly shown a really good process -- progress, and you gave us a nice update there. How do you think about the long-term growth algorithm? Maybe putting float revenue aside, just thinking about subscription and transactional growth from existing customers and new logos. I mean what's the right balance? And how do you think about that formula over a multiyear period?

One of the things that I think we're quite excited about the business is that we have multiple levers to grow the business, right? So we have the ability to leverage the distribution strategy, which has been from day 1 to be multidimensional, to have direct accountant and financial institutions, as John said. That does grow the logos and that does obviously help the overall payment volume on the platform. At the same time, we have ways of adding value for our customers by adding new services and new payment tools, as an example, to increase the value per customer that we're able to provide for the company, right? So what we've seen over time is that as we continue to add new units, we're also adding more revenue per unit. And we believe that the algorithm is to continue to balance that. So we don't have a specific target internally to say it's this or that. What we target is the specific opportunity to say what's the best way to create growth for the business. And in some quarters and some years, it might be to focus on logos and let the monetization continue to do what it's doing. And in other quarters and other years, it will be a focus on adding new products and services that can drive monetization while new distribution partnership comes online. So there's no specific formula. I think the beauty of our business is that we have lots of different levers, and we've been able to demonstrate that those levers can be leveraged to be able to grow the business successfully.

Great. How do you really think about the footprint that you'd like to have over a longer period? Obviously, you've done incredibly well with AP and AR automation, and you're getting tremendous scale and a growing data asset. How do you think about maybe some of the adjacent areas, so things like expense management, procurement? Are there other natural adjacencies that you think are important over a longer period that could be a good fit for Bill?

Yes. A lot of my passion, a lot of the founding energy comes from the desired to automate processes. I came out of software. I worked at Intuit. And I saw that, that front office, that kind of that first interface of collecting data that had been automated and was really simplifying people's lives. But then you look in the back office and people are still walking around and they have processes that they have learned from their parents and none of them have been streamlined, nobody had thought about it. And the opportunity was to automate the processes. And so for me, that's the energy that I have, and that's the passion that we put into solving the problems for our customers every day, is to how can we automate the process and make it more efficient? How can it simplify their lives? And that's why customers today are able to say they save 50% of the time it takes to manage their back office. That's a lot of time that we provide. And so as we look at adjacencies, the adjacencies are going to be what are the processes that can be automated. And so you referenced kind of expense management. I think it's a natural extension for our platform to be -- to move further up the transactional life cycle into procurement and into related activities. So I think that is another way that we can automate processes. Additionally, over time, there's other types of payments, and we've -- you've seen us do the international payments, the card payments, and we're just in the beginning stages of understanding real-time payments. But then there's things that touch payments, which would be expense reporting, spend management and even possibly payroll over time. So those are all things and processes that I just -- I have a lot of energy and passion around and think that if you can simplify that and help people really not worry about that day-to-day grunt work so they can really manage their business, that's a much more fun business to be in for the small business. And that's what gets me jazzed every day.